GE

GE and MS, when patterns are crystal clear.

Hamilton

EW contains a lot of ambiguities which is why 2/3 of the time you are really not sure at all what might happen. To put it in other words, sometime the light is green, sometimes it is red and most of the time it is yellow. Two stocks that have nothing much in common are green for the next few years (but not necessarily months). Gen. Electric and Morgan Stanley both have very articulate A-B-C corrections which are somewhat stylized in the charts below. By the way, these charts do not show the intra-day or week lows, for instance GE actually did get below $6).

ge july 2011 ms july 2011

Unfortunately I cannot get them on the exact same time-frames, unless I put them together in one single chart;

ge ms july 2011

Both these patterns would strongly suggest that these stocks are back on their way up in a new bull market. MS has already retraced 50%of the first wave up, whereas GE may have a little more to drop in what is presumable a wave 2. In both cases a retest of the lows cannot be excluded completely but the odds are better that you will win with these stocks than with, for instance a Pepsi;

pep

This one is bright red. Should it make a similar A-B-C as the others a target of about $40, where wave 4 of previous degree resides , would fit the picture. That is down some $30 from where we are now and there is only $10 to the upside until you hit the upper trend-line. There is nothing particularly wrong with the stock. It has a P/E of 17 and yields about 3% .

GE, Si Siemens and PHG Philips Electronics

Hamilton

Just some rough stats;   Cap.        P/E          Yield

   General Electric           206 bln.   16.6         2.91%

   Siemens                      110          20.54       2.89

   Philips                           30          17.5         3.26

Supposing you wanted to buy one of these what would be the best choice?  all three yield about the same percentage, Philips having a slight advantage. From a P/E perspective General Electric would be the winner by a fairly wide margin. If you like heavy industry Siemens might be your choice but the GE is well represented in that area as well. Medical equipment is made by all three.        Lets look at the charts.

ge2011 Si2011

The charts do not have the same time frame. Interestingly, when GE was still close to its highs Siemens was closer to its lows. This was when Jack W was superman and the guys at Siemens were ridiculed for their arterial sclerosis. One had 6-sigma managerial expertise envied by all and the other was viewed as a make-work project. After almost blowing up while trying its managerial skills on “banking” GE dropped 91% to just under $6. Siemens only lost 72% by dropping to a still respectable $45. So much for owning “blue-chips” at the wrong time.

phg2011

Philips , now Royal Philips is the baby of the three. It is best known for its lighting/glow-lamp division as its full name indicates. Interestingly, it is the only company of this size that uses replacement-cost accounting. Just to avoid the inevitable confusion, it also reports using the traditional historic cost method. As an aside it is somewhat ironic that the FASB in the US has been arguing in favor of mark-to-market accounting – arguable a form of replacement cost accounting but for valuation rather than depreciation purposes – precisely where it is inappropriate, i.e. traditional banking.  The chart for Philips resembles that of GE the most and at the low of the C leg it loses72%, the same as Siemens. Presently it is right in the middle of the range and for that reason alone should not be bought! Given the respective positions of the other two within their range of the last 10 years, GE should be bought and Siemens sold at a 6 to 1 ratio. See the chart on the left , below;

si,ge 2011 si,phg

This is not the best pairs trade chart but it will do. Each stock is given the same starting point and the charts simple shows how far the stock is deviation from that starting point in a percentage. The lower chart shows those two percentages added together. A few weeks ago we were at the widest point in the past ten years (and probable also over a much longer time-frame). This trade would be based on this gap narrowing as in 02 and 08. A drop by SI to about $90 and a rise for GE to $25 , both fairly reasonable assumptions,  would close the gap to about 65% from the present 135% , a gain of 70% on the notional investment. Observe that at the end of 2007 the gap was almost as wide as it is today. It took less than a full year to narrow to almost nothing. This is , of course , market neutral as the market’s direction is not relevant to the outcome.       The chart on the right does the same for SI and PHG. Clearly the higher degree of correlation makes that spread (now at +60%) a lot less robust.For GE and PHG the equivalent number is –60%.

BCE, GE, the blue chips

Hamilton

Both BCE in Canada and GE in the States were, once upon a time considered to be “blue chips”, which, freely translated meant that these stocks were more or less impervious to down cycles , too big to fail, and dividend paying, in short excellent investments for widows and orphans and all those other investors that did not want to play roulette. Here are the charts.

bce jan 20112 ge jan 2011

BCE dropped from $50 to $18 or , give or take, 62% and GE did an even better job by dropping from $60 to $6 or 90%. BCE was always considered a grossly mismanaged company and GE, in contrast, the learning school for the latest sophisticated techniques in advanced management. One blew up by falling asleep and the other by not sticking to its knitting, by aggressively becoming a bank. The moral to be drawn from this is that there are no blue chips, period.

  Both these stocks may have completed an entire correction lasting about 10 years, which would imply that they are now in new bull markets. This view is more compelling with GE than BCE! All the more so if one looks at what they make. One is in phone services where the costs are gravitating to zero and the other makes jet-engines, dish-washers and a million other things. I would put my money on GE.

bcejan 2011

Short – term BCE may try to get back to the $40 level (top of B of C ) where it briefly was just prior to the debacle with Teachers et al trying to take it private. I have NEVER seen a chart that is so trend persistent – for  over two years this thing has been on track without any pull-back. The RSI and MACD  are already turning and this cannot go on for ever. It is about $3/4 from its target. Get out or use a tight stop, $34 where the lower line runs or even higher. Even if this is a NEW bull market, typically first waves up are retraced by 60% or more.

DW, Dundee Wealth Management

Hamilton

We first recommended this stock at about $5.75, then suggested a sale at about $9 and later again at $15, each time pointing out that the stock could go much higher. After all it had done an A-B-C “correction” from $22 to below $4, a big move but still a correction implying , at least the possibility of a new high. Always mindful of how painful it is to lose money we are always a little eager to take profits, perhaps too eager. The stock is being taken over at $21, here is the chart.

DW Nov 2010

It did drop by about $3 after reaching $15 and it did spend about 8 months in the dog house but in just the last few months it shot up by almost $9 to essentially double top. The important message that can be taken from this is that when you have a perfectly symmetrical A-B-C it is possible that the correction is the entire correction and not just part of it, so a new high is just around the corner. This pattern occurs frequently, see for instance Ivanhoe IVN and, arguable , General Electric, GE.